Hedge funds plan to significantly increase their exposure to cryptocurrencies by 2026, a new survey shows, in a major vote of confidence for digital assets after recent large price falls and plans for punitive new capital rules.
A survey of 100 hedge fund chief financial officers globally, conducted by fund administrator Intertrust, found that executives expect to hold an average of 7.2 per cent of their assets in cryptocurrencies in five years’ time.
If replicated across the sector, that could equate to a total of about $312bn of assets in cryptos, based on data group Preqin’s forecast for the total size of the hedge fund industry, Intertrust estimated. Seventeen per cent of respondents expected to have more than 10 per cent in crypto.
This would represent a large increase in appetite among hedge funds. Current holdings in the sector are unclear, but a number of big-name managers have already committed small amounts to crypto assets, attracted by soaring prices and market inefficiencies that they can arbitrage.
Man Group trades bitcoin futures in its computer-driven AHL unit, while Renaissance Technologies last year said its flagship Medallion fund could invest in bitcoin futures. Hedge fund manager Paul Tudor Jones has bought into Bitcoin, while Brevan Howard has been shifting a small portion of funds into crypto and its co-founder, billionaire Alan Howard, is a major backer of the industry.
Bitcoin is the largest contributor to gains this year at US fund firm SkyBridge Capital, set up by former White House communications director Anthony Scaramucci, which started buying it late last year and then trimmed its holding going into April — just before the price of the token fell.
Hedge funds “are well aware not only of the risks but also the long-term potential” of cryptos, said David Miller, executive director at Quilter Cheviot Investment Management.
The growing enthusiasm shown by hedge funds stands in sharp contrast to widespread scepticism among more traditional asset managers, many of whom remain concerned about cryptocurrencies’ huge volatility and uncertainty over how they will be regulated.
“For the moment, crypto investments remain limited to clients that have a high risk tolerance and, even then, investments are typically a low proportion of investable assets,” Morgan Stanley and Oliver Wyman, the consultancy, said in a recent report on asset management.
Some hedge funds remain wary. Paul Singer’s Elliott Management wrote to investors earlier this year that cryptocurrencies could possibly become “the greatest financial scam in history” in a letter seen by the Financial Times.
Cryptos have experienced a wild ride again this year. Bitcoin soared from less than $29,000 at the end of last year to more than $63,000 in April, but has since fallen back to just over $40,000.
While the future regulation of cryptos remains unclear, last week the Basel Committee on Banking Supervision said they should carry the toughest bank capital rules of any asset.
Intertrust’s survey, whose respondents include CFOs globally of funds that on average manage $7.2bn in assets, also showed that all the executives surveyed in North America, Europe and the UK expect to have at least 1 per cent of their portfolio in crypto.
North American funds expect to have exposure of 10.6 per cent on average, while those in the UK and Europe expect 6.8 per cent on average.
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